DEC CHI WHEAT
We introduced a major peak/reversal count in 25-May’s Technical Blog and have been bearish ever since. And per 14-Jul’s Technical Blog, a recovery above 11-Jul’s Globex day-session corrective high at 9.20, and key bear risk parameter, is required to break May-Jul’s downtrend and expose a broader correction higher. HOWEVER, given the prospect that last Fri’s 7.84 low might have completed a textbook 5-wave Elliott sequence down from 17-May’s 12.82 high, and considering waning downside momentum and a plunge in the Bullish Consensus to a 21-month low, we believe a pure and favorable risk/reward opportunity exists from the buy side.
The daily log chart above shows our preferred count of a potentially complete 5-wave sequence down from the May high amidst the nicely developing POTENTIAL for a bullish divergence in momentum. A recovery above 11-Jul’s 9.20 corrective high remains required to CONFIRM this divergence in momentum and, in fact, break the two-month downtrend; so we’re clearly jumping the proverbial gun here. But this jump is not totally baseless or just a “gut feel” (which we NEVER adhere to). Indeed, the hourly chart below also shows the nicely developing potential for a bullish divergence in momentum. A recovery above 13-Jul’s 8.56 corrective high and mini risk parameter will CONFIRM this mini divergence and reinforce last Fri’s 7.84 low as one of developing importance and a short-term risk parameter from which non-bearish decisions like short-covers and cautious bullish punts can be objectively based and managed. The market traded above 8.56 in overnight trading.
For those speculators who’d like to take a small but precisely measured (risk) leap of bullish faith, we believe cautious bullish exposure from the current 8.35-area OB and/or following a break above 8.56, with a failure below 7.84 negating this call and warranting its immediate cover, presents very favorable risk/reward metrics ahead of a correction higher that we believe could range anywhere from 9.46 to 10.62 (38.2%-to-61.8% retraces of 12.82 – 7.84 decline).
Anther contributing factor to a least an interim base/correction count is the recent and understandable plunge to a 21-month low of 44% in the Bullish Consensus measure of market sentiment shown in the weekly log chart below. If/when this market recoups 11-Jul’s 9.20 larger-degree corrective high, “confirming” a bottom and recovery will become obvious and expose a correction higher that could be extensive in terms of both price and time.
These issues considered, a bearish policy remains advised for longer-term commercial players with a recovery above 8.56 required to pare exposure to more conservative levels and commensurately lager-degree strength above 9.20 to warrant moving to a neutral-to-cautiously-bullish stance. Shorter-term traders are advised to take profits on previously recommended bearish exposure and consider a cautious bullish position from current 8.35-area prices OB with a failure below 7.84 negating this call and warranting its cover.
DEC MATIF WHEAT
Knowing that positive correlation between Chi and Matif wheat as well as a confirmed bullish divergence in short-term momentum from Dec Matif wheat’s extreme lower recesses of its past few weeks’ range, we believe a similar and favorable risk/reward opportunity from the bull side is presented with a relapse below 06-Jul’s 313.00 low negating this call and warranting its cover.
The hourly chart below shows yesterday’s bullish divergence in very short-term mo above Mon’s 329.00 initial counter-trend high. This defines Fri’s 315.25 low as the end of the decline from 11-Jul’s 355.50 larger-degree corrective high and key long-term bear risk parameter. Given the extremely close proximity of Fri’s 315.25 low to 06-Jul’s obviously key 313.00 low, this market is identifying this entire 315-to-313-area as one of developing support and a risk parameter from which non-bearish decisions like short-covers and cautious bullish punts can be objectively based and managed.
On a broader basis and UNlike Chi wheat, Matif wheat has yet to complete a 5-wave sequence down from its 17-May high at 437.50. Fri’s 315.25 low could be a 5th-Wave failure or the b-Wave of a 4th-Wave consolidation from 313.00 that’s got further to go and could include another run-up to the 355.50-area. Or this interim base/correction count could be flat-out wrong and will be nullified by a relapse below 313.00 straight away.
We prefer the base/correction/reversal count in Chi wheat over this one in Matif wheat for the reasons specified above. By the same token, the Dec Matif wheat contract has actually CONFIRMED a bullish divergence in very short-term mo above 329.00. In both cases, we admit to jumping the gun a bit on recoveries. But we absolutely did identify recent lows like 313.00 and 7.84 from which non-bearish decisions like short-covers and cautious bullish punts can be objectively based and managed.
Per such, longer-term commercial players are advised to pare bearish exposure to more conservative levels and jettison remaining exposure on commensurately larger-degree strength above 355.50. Shorter-term traders with tighter risk profiles are advised to take profits on previously recommended bearish exposure and consider a cautious bullish position from current 326-area levels OB with a failure below 313.00 negating this call and warranting its immediate cover.